Negative gearing on the chopping block

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Posted on Friday, 22 April 2011

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Suggestions that the federal government is considering a reduction to negative gearing benefits has been met with outrage by the property industry.

The Housing Industry Association (HIA) has labelled reports of a possible new sales tax on investment property as well as a reduction in negative gearing benefits disturbing as well as damaging to confidence in an already struggling housing market.

“The suggestion that the federal government has plans to introduce a new sales tax on investment housing has all the hallmarks of the disastrous move to introduce a similar tax in New South Wales in 2004. This tax led to home building in New South Wales grinding to a halt, a situation from which the state has struggled to recover,” said HIA chief executive Graham Wolfe.

According to a report in The Age, the government has sounded out unions about such potential changes.

“The Prime Minister or Treasurer must deny today’s media claims immediately before substantial damage is inflicted on home building in Australia,” said Mr Wolfe.

The Real Estate Institute of Australia (REIA) has also been quick to criticise the reports.

“Continued investment in property is critical to a healthy rental market. The report that the
government is considering changes to the current model would have a dramatic effect on the future supply of rental properties in an already tight market,” said REIA president David Airey.

“The suggestion appears to be at odds with the government’s goal of addressing the supply of
rental accommodation through the Housing Affordability Fund (HAF) – negative gearing is
complementary to these goals,” he said.

Mr Wolfe said removing negative gearing would be ludicrous.

“Allowing taxpayers to claim interest expenses on borrowings is entirely appropriate – it is not a tax rort. Income from rental properties is assessable, and expenses should be deductible. This is the basic premise of Australia’s taxation system”.

The cost to government revenue of negative gearing is less than $2.5 billion per annum, Mr Wolfe said – around half the amount the federal government will raise through its newly introduced flood tax.

“Yet, despite its small quantum, negative gearing is crucial to investment in rental housing,” said Mr Wolfe.

“After the disastrous flirtation with the quarantining of negative gearing on rental investment property in 1985, and New South Wales Labor’s dire experience with a vendor tax, I doubt the Gillard Government is really suggesting such a strategy,” said Mr Wolfe.

“But the federal government does need to clarify its position on today’s reports.”